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We study the welfare impacts of illness shocks on rural agricultural households in the semi‐arid tropical and humid eastern regions of India. These regions are characterized by rainfed agriculture, missing markets for credit and insurance, and limited access to publicly funded healthcare infrastructure. We find that illness shocks increase households' medical expenditures and reduce wage income. However, aggregate non‐medical, food, and non‐food consumption expenditures are insensitive to illness shocks. Disaggregating illness by the age and the gender of the household members, we observe that illness in male children leads to the largest increase in medical expenditure, and illness in prime‐aged adults leads to the largest decline in per‐capita wage earnings. We also find illness shocks leading to changes in household dietary diversity, higher travel expenditures, and a compensating reduction in spending on education and entertainment. Analysis of risk‐coping strategies reveals that households rely on transfers from kinship networks and loans from informal sources like local moneylenders to smooth consumption. While large landowners rely on gifts from kinship networks, landless and smallholders increase borrowings from informal sources. [ABSTRACT FROM AUTHOR]

In this study, we adopt the structural vector auto-regressive (SVAR) model to assess the degree to which global uncertainties affect the relationship between financial integration and consumption smoothing in Egypt and Nigeria using quarterly data from 2010 to 2020. The study hypothesises that global uncertainty shocks will have adverse effects on consumption smoothing in both Nigeria and Egypt. Our main results from the study show that the economic policy uncertainty shock has a more declining effect on consumption smoothing in Egypt than other global uncertainty proxies. On the other hand, global economic condition shocks have a more declining effect on consumption smoothing in Nigeria than other global uncertainty proxies. In addition, financial integration accounted for more variability in consumption smoothing in Egypt than in Nigeria; this may be due to the fact that Egypt is more financially integrated than Nigeria. We therefore make the following recommendations: Nigeria may diversify the economy by promoting growth in other sectors, such as manufacturing, to reduce the impact of external shocks on the economy and provide greater stability for households. Policymakers in Egypt can diversify export markets and reduce reliance on the US market to mitigate the impact of US policy fluctuations on Egypt’s economy.

Is consumers' present spending influenced by future changes in their income? From an economic perspective, consumers should reduce present spending when anticipating a future income decrease and boost spending when anticipating a future income increase to maximize their welfare. We find that although consumers tend to adjust their spending to a future income decrease, they are less likely to do so to a future income increase. We show that this is, in part, due to a low sense of self‐continuity, a tendency to view the future self whose income increases as if it were a different person and, as a result, to categorize present and future income into two separate mental accounts. Enhancing self‐continuity leads consumers to combine present and future income in a single mental account, and thereby facilitates adjustment of present spending to a future income increase. Whereas prior work linked high self‐continuity to reduced present spending, we identify a context in which high self‐continuity can boost present spending. We discuss the implications of these findings for consumer well‐being. [ABSTRACT FROM AUTHOR]

We study the effect of within-household mortality on the evolution of household per capita consumption. Relying on a panel survey of Mexican households, we find that these households were capable of perfectly smoothing the shock into their consumption caused by the death of a household member. Our findings indicate that a household's ability to smooth consumption depends neither on the characteristics of the deceased household member nor on the income of a particular household. We find no clear temporal pattern in the evolution of the shock caused by within-household mortality. Our results provide strong support for the hypothesis that the evolution of household consumption is not affected by within-household mortality. [ABSTRACT FROM AUTHOR]

We examine shocks experienced by rural Nepali households during the COVID‐19 pandemic. Households primarily experienced income and price shocks during a government‐imposed lockdown. During this time, households managed to effectively protect consumption, and mostly relied on credit (26%), asset sales (10%) and savings (8%). Debt levels nearly doubled, with limited changes to savings. We then leverage a long‐term randomized control trial (RCT) to assess whether beneficiaries of a livestock livelihood program are more resilient. Program beneficiaries are 6 percentage points less likely to take out new loans. [ABSTRACT FROM AUTHOR]

By purchasing larger quantities of goods and saving them for future consumption households are able to reduce transaction costs and acquire goods at a lower price per unit, presuming they can manage the transportation and storage costs. This study uses variations in state income tax refunds over time to estimate consumption responses to lump‐sum payments. Households purchase around 20 per cent more of easily stored toilet paper in the months in which tax refunds are issued, but do not increase purchases of perishables such as bread and eggs. In addition to purchasing more goods at a lower per‐unit price, households also appear to increase the time until their next purchase, which implies that they are saving goods for consumption over time. These in‐kind savings allow people to smooth their consumption over time, much like pecuniary savings. Government payments that provide lump‐sum payments can benefit consumers by providing additional liquidity to buy and store goods at a lower cost. [ABSTRACT FROM AUTHOR]

Abstract Background Seasonality is an important aspect of food security for subsistence households in developing countries. Among the multidimensional aspects of food security, this paper focuses on how unexpected negative harvest shocks would affect the seasonal food consumption of households. This is particularly important because, with the increasing threat of climate change, the frequency of extreme weather events such as droughts and floods is expected to increase; this would adversely affect crop yields. Methods Given seasonal price changes of staple foods, some households buy them when prices are low and store them for the hunger season (not buy high (NBH) households), while others run out of staple foods before the next harvest and therefore buy them when prices are high (buy high (BH) households). Using three years of weekly household panel data for the Choma and Sinazongwe Districts of the southern province of Zambia, we assess the ability of seasonal consumption smoothing separately for NBH and BH households. Results NBH households successfully smooth their consumption over the 12 months of the crop year. In contrast, BH households, especially for households with few assets, reduce total consumption in response to harvest shocks, just after the harvest and during the “hunger season” just before the next harvest. However, in spite of this, the consumption of staple foods is generally insensitive to harvest shocks. Instead, they reduce consumption only of non-staple food items, such as vegetables and meats. Conclusions Seasonal food insecurity is exacerbated by negative harvest shocks. We emphasize the significance of policies aimed at increasing public awareness of healthier food choices, empowering households to avoid purchasing maize at high prices, and reducing seasonal price disparities.

Households in Nigeria live in inherently risky environments; accentuated by the preponderance of terror incidences, banditry, and farmer–herder‐related clashes that are more concentrated in the northern than southern parts of the country. This study examines the proposition that households with a robust network roster—especially networks related to ethnicities and financial remittances from outside their communities—are better able to weather the idiosyncratic and aggregate impact of terror‐related shocks; and thus, experience less consumption variability to terror‐related shock than other similar households without the "insurance" of an external network. Our main empirical strategy applies a panel difference‐in‐differences specification to three waves of the LSMS‐ISA surveys for Nigeria. The results from the study indicate that having external networks outside the community is an important coping mechanism for terror‐related shocks, both for overall welfare and food consumption. The difference in consumption variability between groups with outside network "insurance" and those without could be as high as 20 percentage points. Thus, risk‐sharing arrangements for households should exploit outside network insurance mechanisms to mitigate welfare losses from terror‐related shocks. [ABSTRACT FROM AUTHOR]

In today's increasingly interconnected global economy, understanding the mechanisms that influence consumption smoothing has become crucial for policymakers and economists alike. In this study, the effect of income, income asymmetry and financial integration on consumption smoothing in Africa was estimated. The study covers the period 1985-2020 using panel data on 10 countries. Estimation is done using the Dynamic Common Correlated Effects (DCCE) estimation technique. It is shown that asymmetry existed in the short run given the significance of Wald test for asymmetry (P<0.05). Furthermore, positive income asymmetry (ß= - 0.7365, z= -2.47), and negative income asymmetry (ß= 0.8541, z=2.66), exerts statistically significant effects on consumption smoothing. In the long run, positive income asymmetry (ß=3.2595, z=2.17) has significant effect on consumption smoothing. Results from the equation with income asymmetry interacted with financial integration indicates that in the short run, positive income asymmetry (ß= -3.7772, z= -2.17), and its interaction with financial integration (ß= -3.8545, z= -2.06) exerts significant effects on consumption smoothing. The study recommends that governments could consider implementing regulations and controls on international financial flows to limit the impact of external shocks, howbeit with caution, given the consumption smoothing reducing effect of the interaction of positive income asymmetry and financial integration. [ABSTRACT FROM AUTHOR]

We implement a dynamic asset pricing experiment in the spirit of Lucas (1978) with storable assets and non-storable cash. In the first treatment, we impose diminishing marginal returns to cash to incentivize consumption smoothing across periods. We find that subjects use the asset to smooth consumption, although the asset trades at a discount relative to the risk-neutral fundamental price. This under-pricing is a departure from the asset price “bubbles” observed in the large experimental asset pricing literature originating with Smith et al. (1988) and can be rationalized by considering subjects' risk aversion with respect to uncertain money earnings. In a second treatment, with no induced motivation for trade à la the Smith et al. design, we find that the asset trades at a premium relative to its expected value and that shareholdings are highly concentrated. Elimination of asset price uncertainty in additional experimental treatments serves to reinforce the same observations, and suggests that speculative behaviour explains the departure of prices from fundamental value in the absence of a consumption-smoothing motive for asset trades.

The household final consumption expenditure is an important factor in economic development and, at the same time, a reflection of households' economic behaviour. When economic recession occurs, households respond in their consumption not immediately, but with a certain delay, which somewhat slows down and alleviates the crisis. On the other hand, when recovery comes, a slower growth in consumption delays the economic boom. The Czech economy has undergone four crises in the most recent 30 years. The goal of the present paper is to establish whether the delayed consumption effect has been valid for the turbulent development in the Czech economy and what is the role played by expenditure on assets with different durability. Our source is the publicly available data from the Czech Statistical Office.

• Using primary data collected among protracted refugees in camps and an exogenous variation in the time lapse between the food transfer and the interview date, we investigate whether refugee's food consumption responds to the timing of the distribution of food aid. • Refugee households experience an average decline of 1.1 to 1.5 percent per day in their daily caloric intake between distributions of food aid. • Short-term nutritional status of children under five, as measured by mid-upper arm circumference for height z-score, also declines over time over the distribution cycle. Years after the initial settlement, food aid remains an essential component of humanitarian assistance for protracted refugees in managed camps. From data collected among refugee households in three camps in southern Chad and an exogenous variation of time between the latest food distribution and households' interviews, we draw the time path of household's consumption. Consistent with the literature on intertemporal choices in high-income countries, refugee households experience an average decline of 1.1 to 1.5 percent per day in their daily caloric intake between distributions. The short-term nutritional status of children under five also responds to the distance from food aid distribution and confirms the existence of food distribution cycles. Our results suggest that households don't smooth consumption during the interval of time between two distributions, and face regular and frequent cycles of food shortage resulting in detrimental consequences on children's health. [ABSTRACT FROM AUTHOR]

We use an event study approach to examine the economic consequences of hospital admissions for adults in two datasets: survey data from the Health and Retirement Study, and hospitalization data linked to credit reports. For non-elderly adults with health insurance, hospital admissions increase out-of-pocket medical spending, unpaid medical bills and bankruptcy, and reduce earnings, income, access to credit and consumer borrowing. The earnings decline is substantial compared to the out-of-pocket spending increase, and is minimally insured prior to age-eligibility for Social Security Retirement Income. Relative to the insured non-elderly, the uninsured non-elderly experience much larger increases in unpaid medical bills and bankruptcy rates following a hospital admission. Hospital admissions trigger less than 5 percent of all bankruptcies.

Poor households in rural Bangladesh often face concurring idiosyncratic and aggregate shocks, which have adverse impacts on their income and consumption. In this study, we investigate the transmission channels, coping responses, and economic consequences of different shocks including idiosyncratic adverse health events and aggregate agricultural productivity shocks. We use a balanced panel data of 5,655 rural households - interviewed every year between 2010 and 2013 - in northern Bangladesh. We estimate the effects of adverse health shocks on the consumption levels of poor households in a multi-shock framework. We take advantage of the panel data and use fixed effect models to control for unobserved household-level confounders and potential endogeneity. We further examine effects of shocks to agricultural wages on consumption using rainfall as an instrument. We further carry out a number of robustness checks to understand how sensitive our models are to different alternate specifications. Results indicate that households smooth their consumption after experiencing adverse health shocks, with and without the parallel incidence of other types of shocks. Consumption smoothing occurs despite households experiencing a significant decrease of wage income, which appears to be driven by an increase in informal loans from money lenders and households' social networks. To evaluate the effect of a different type of income shock on consumption, we use rainfall as an exogenous instrument for agricultural income. Results indicate that while higher rainfall leads to a significant increase in agricultural income, it does not translate to higher food expenditure for households. Together, these findings offer suggestive evidence that, in this setting, households appear to smooth food consumption in the face of income shocks. Poor households rely on formal and informal, potentially costly channels and exploit existing social networks to insure themselves against adverse shocks. The findings highlight the importance of developing a better framework to evaluate and implement more equitable social safety net policies. [ABSTRACT FROM AUTHOR]

In this paper, we explore the dynamics of working hours and wages in a model economy where a firm and its workforce are linked to each other by an implicit contract. Specifically, we develop a deterministic and a stochastic framework in which the firm sets its level of labor utilization by considering that workers' earnings tend to adjust in the direction of a fixed level. Without any uncertainty about firm's profitability, we show that the existence and the properties of stationary solutions rely on the factors that usually determine the enforceability of contracts and we demonstrate that wages move countercyclically towards the allocation preferred by the firm. Moreover, we show that adding uncertainty does not overturn the countercyclical pattern of wages but is helpful in explaining their dynamic behavior in response to demand shocks as well as their typical stickiness observed at the macrolevel. [ABSTRACT FROM AUTHOR]

Adoption of chemical fertilizers is a high-risk and high-return investment option for smallholder agricultural households that heavily rely on rainfall. I document a persistent gap of above 10% in the adoption of chemical fertilizer between male- and female-headed smallholder farmers in Ethiopia. This gender gap remains after accounting for household characteristics, access to complimentary farm inputs, access to credit, soil quality, and crop selection. Using historical variability of rainfall at the district level as a measure of a district's risk of crop failure, I find strong evidence that the gender gap in fertilizer adoption increases with the level of risk in the district. I explore the role of two competing hypotheses to explain this observation: gender difference in risk aversion and differential access to consumption smoothing/liquidity constraints by male- and female-headed households. I find strong evidence that gender differences in access to consumption smoothing/liquidity constraints play a minimal role, implying that gender difference in risk aversion plays the dominant role. This is consistent with a bulk of lab and field experimental studies that find evidence that women tend to be more risk-averse than men. [ABSTRACT FROM AUTHOR]

• We analyse post retirement spending and saving motives by Dutch and Australians. • Differences in saving motives by country reflect actual pension settings. • The desire for precautionary savings explains why retirees hold on to their wealth. • Saving motives change if people anticipate major health and mortality shocks. • Preferred spending is always more conservative in Australia than in the Netherlands. We investigate the importance of alternative motives for saving and spending patterns after retirement in the Netherlands and Australia. Using an online experimental survey, we elicit the impact on advised spending patterns and underlying saving motives of alternative retirement drawdown designs, ranging from complete flexibility in Australia to full annuitization in the Netherlands, and of major life events such as becoming frail or losing a spouse. We find that important motives for spending and saving after retirement in both countries are the desire to remain financially independent and to ensure that it is possible to enjoy life now as well as later. However, consistent with differences in real world pension settings, life span risk is more important and liquidity less important in Australia than in the Netherlands. With the exception of inter vivos transfers to a surviving spouse, the bequest motive is not important in either country. Our results suggest that an important reason for the widespread behaviour of retirees to hold on to their wealth might be the desire to hold precautionary savings for health and long-term care expenditures. We also find that individuals revise their saving motives in anticipation of major life events but are less responsive to variation in 'experimental' retirement drawdown arrangements, remaining aligned to the prevailing institutional arrangements in their country. [ABSTRACT FROM AUTHOR]

How does government debt affect household debt? Capitalizing on a model of life-cycle economy populated by households with no bequest motive, this article shows that effect of government debt on aggregate household debt is conditional. If residence-service benefit of house is greater than equity-accrual benefit of house investment, government debt negatively affects household debt. If not, government debt positively affects household debt. This theoretical finding is tested with panel data of 53 countries over 1991–2019. Using system Generalized Method of Moments finds supportive evidence for the conditional effect, which remains robust after adopting external instrumental variable and alternative approach to expectation formation. [ABSTRACT FROM AUTHOR]

International commodity price shocks may have large impacts on producers in developing countries. In this paper, a unique household panel data from Ethiopia is utilized to show that a decrease in international coffee price has strong pass-through to the consumption of households that rely on coffee production as a main source of livelihood. It also results in decreases in on-farm labor supply (particularly male labor supply) and induces reallocation of labor towards non-coffee fields, but has negligible effect on off-farm labor supply. The decline in consumption has significant consequences on child malnutrition: children born in coffee-producing households during low coffee price periods have lower weight-for-age and weight-for-height z -scores than their peers born in non-coffee households. [ABSTRACT FROM AUTHOR]

This article provides a novel framework within which to evaluate real household incomes of predominantly rural working families of various sizes and structures in England in the years 1260–1850. We reject ahistorical assumptions about complete reliance on men's wages and male breadwinning, moving closer to reality by including women and children's contributions to family incomes. Our empirical strategy benefits from recent estimates of men's annual earnings, so avoiding the need to gross up day rates using problematic assumptions about days worked, and from new data on women and children's wages and labour inputs. A family life‐cycle approach which accommodates consumption smoothing through saving adds further breadth and realism. Moreover, the analysis embraces two historically common but often overlooked family types alternative to the traditional male‐breadwinner model: one where the husband is missing having died or deserted, and one where the husband is present but unwilling or unable to find work. Our framework suggests living standards varied widely by family structure and dependency ratio. Incorporating detailed demographic data available for 1560 onward suggests that small and intact families enjoyed high and rising living standards after 1700, while large or disrupted families depended on child labour and poor relief until c. 1830. A broader perspective on family structures informs understanding of the chronology and nature of poverty and coping strategies. [ABSTRACT FROM AUTHOR]

How does income uncertainty affect individual well‐being? Combining individual‐level panel data from rural Ethiopia with high‐resolution meteorological data, we estimate that mean‐preserving increases in rainfall variability are associated with reductions in objective consumption and subjective well‐being. Mediation analysis suggests that the estimated reduction in consumption does not fully explain the total effect on individual well‐being. Increased rainfall variability also has a large direct effect on individual well‐being. These findings suggest that the gains from further consumption smoothing are likely greater than estimates based solely on observed consumption fluctuations. [ABSTRACT FROM AUTHOR]

India has seen high levels of unemployment in recent years. Understanding how an episode of job loss affects household consumption expenditure is important for designing effective safety net programs. We apply difference-in-difference and quantile regressions to a high-frequency panel data from a nationally representative survey of 1,75,000 households in 2019 to estimate the impact of a job loss on household consumption expenditure – for urban and rural households, and households across different expenditure levels. We find that the loss of employment of an earning member leads to a significant immediate decline in household consumption expenditure. The decline is larger for urban households and households in the lowest and the highest income deciles. Durable and discretionary expenses go down the most. Expenditure on health and education also goes down significantly, especially, in urban areas. Our findings highlight the high vulnerability of urban households to economic shocks and can inform the design and targeting of income support and other safety-net programmes in India and other developing countries. [ABSTRACT FROM AUTHOR]

The development of effective risk sharing mechanisms is one of the main passages for the success and longevity of a monetary union. In this paper, we study risk sharing, measured as income and consumption smoothing, in the EMU. As we employ time‐varying estimations, we are able to retrieve time patterns of risk sharing for each member country and to compare them with the degree of economic asymmetry within the EMU. Other than documenting the need for stronger risk sharing mechanisms in the EMU, our results also suggest that much more attention should be dedicated to fostering homogeneity in risk sharing across member countries. We document the existence of increasing heterogeneity in the risk sharing capacity between member countries that can potentially exacerbate and amplify the impact of asymmetric shocks and further destabilize the EMU. [ABSTRACT FROM AUTHOR]

This note aims at assessing the temporal relationship that exists between the time reference of dynamic models with infinite and finite horizon. Specifically, comparing the optimal inter‐temporal plans arising from an infinite horizon model and a 2‐period overlapping generations model in their stationary equilibria, I suggest way to assess the number of time periods of the former that form a time unit of the latter. Relying on an argument grounded on consumption smoothing, I show that the theoretical length of a generation is an increasing function of the discount factor of the optimising agent. Moreover, from an empirical point of view, I give evidence that this analysis corroborates the well‐documented nexus that links demographic developments and the path of interest rates, and it offers interesting insights for the calibration of discount rates in computational models. [ABSTRACT FROM AUTHOR]

Foreseeable income reductions around retirement should not affect aggregate consumption. However, given higher leisure endowments after retirement, theory also predicts lower consumption of leisure substitutes. To avoid misinterpreting this predicted drop as a puzzle, our novel approach focuses on housing consumption (complementary to leisure in utility) and controls for leisure changes. In Germany tenants represent roughly half of all households, making many housing expenditures directly observable in micro data. We find significant negative impacts of the retirement status on housing consumption, which is hard to reconcile with life-cycle theory. Despite the lock-in nature of past housing decisions, income reductions at retirement have additional – though small – effects on housing. [ABSTRACT FROM AUTHOR]

The household final consumption expenditure is an important factor in economic development and, at the same time, a reflection of households' economic behaviour. When economic recession occurs, households respond in their consumption not immediately, but with a certain delay, which somewhat slows down and alleviates the crisis. On the other hand, when recovery comes, a slower growth in consumption delays the economic boom. The Czech economy has undergone four crises in the most recent 30 years. The goal of the present paper is to establish whether the delayed consumption effect has been valid for the turbulent development in the Czech economy and what is the role played by expenditure on assets with different durability. Our source is the publicly available data from the Czech Statistical Office. [ABSTRACT FROM AUTHOR]

Abstract Consumption smoothing and temporal price arbitrage are the two main economic motives for grain storage in semi-subsistence economies. Nonetheless, little has been documented on the determinants of households’ grain storage behavior. Using a rich panel data from maize producing households in Ethiopia, this paper investigates the determinants of households’ decision to store grain for consumption and/or for the market. We found that grain storage is mainly determined by climatic factors, technological innovations, and shocks. Grain storage for consumption and for the markets are not mutually exclusive decisions. While the decisions made by the households to store maize for consumption and for the markets are influenced by a host of similar factors, the effects of climatic factors and infrastructure are found to be heterogeneous.

The Lucas tree model [Lucas RE Jr (1978) Asset prices in an exchange economy. Econometrica 46(6):1429–1445.] lies at the heart of modern macrofinance. At its core, it provides an analysis of the equilibrium price of a long-lived asset in an exchange economy where consumption is the objective and the sole purpose of the asset is to smooth consumption through time. Experimental tests of the model use a particular instantiation of the Lucas model. Here we adopt a different instantiation to the first two, extending their analyses from a two-period oscillating world to a three-period cyclical world; this is partly to test the robustness of their results. We also go one step further and compare this solution (to a consumption-smoothing problem), in which consumption claims are traded via the long-lived asset, with the alternative solution provided by a market, in which agents can directly trade (short-lived) consumption claims between periods. We find that the latter exchange economy is more efficient in encouraging consumption smoothing than the economy with the long-lived asset. We find evidence of uncompetitive trading in both markets. This paper was accepted by Yan Chen, decision analysis. [ABSTRACT FROM AUTHOR]

The location of individuals determines their job and schooling opportunities, amenities, and housing costs. We conceptualize the location choice of individuals as a decision to invest in a "location asset." This asset has a current cost equal to the location's rent, and a future payoff through better job and schooling opportunities. As with any asset, savers in the location asset transfer resources into the future by going to expensive locations with high future returns. In contrast, borrowers transfer resources to the present by going to cheap locations that offer few other advantages. Holdings of the location asset depend on its comparison to other assets, with the distinction that the location asset is not subject to borrowing constraints. We propose a dynamic location model and derive an agent's mobility choices after experiencing income shocks. We document the investment dimension of location and confirm the core predictions of our theory using French individual panel data from tax returns. [ABSTRACT FROM AUTHOR]